WASHINGTON, June 3 The U.S. economy may be in
for a long period of soft growth after employers hired the
fewest number of workers in eight months in May and the
unemployment rate rose to 9.1 percent.

Nonfarm payrolls increased 54,000 last month, the Labor
Department said on Friday, just over a third of what economists
had expected.

However, analysts saw little chance the economy would slide
back into recession, given that temporary factors like high
gasoline prices and supply chain disruptions from the
earthquake in Japan were constraining growth.

"The recovery has not been aborted. The economy is not
falling into a double-dip," said Sung Won Sohn, an economics
professor at California State University in the Channel
Islands. "This weakness, however, is a warning shot across the
bow of the economy."

The broadly weak report confirmed a loss of economic
momentum already flagged by other data from consumer spending
to manufacturing. The department said it found "no clear
impact" on the jobs figures from the tornadoes and flooding in
the U.S. Midwest and South.

The sharp slowdown in job creation accompanied signs of
softening growth overseas and was troubling news for President
Barack Obama, whose chances of re-election next year could
hinge on the health of the economy.

In remarks to auto workers in Ohio, Obama did not directly
address the jobs figures, although he acknowledged the
economy's woes and said it would take a while to mend.

"There are still some headwinds that are coming at us.
Lately it's been high gas prices, then you have the economic
disruptions following the tragedy in Japan," Obama said.

"There are always going to be bumps on the road to
recovery. We are going to pass though some rough terrain."
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High gasoline costs hurt consumer spending in the first
quarter, when economic growth was held to a 1.8 percent annual
pace after expanding at a 3.1 percent rate at the end of 2010.

Wal-Mart (WMT.N) Chief Executive Mike Duke on Friday said
the "paycheck cycle," where people stock up around payday and
then spend less as the month progresses and cash runs out, is
more pronounced than it has ever been.

The employment data lent more fuel to talk about the need
for the Federal Reserve to extend its asset purchasing program
when it expires this month, but officials at the central bank
have set a high bar for any further easing of monetary policy.

With the Obama administration and lawmakers discussing how
best to trim U.S. spending as they try strike a deal on raising
the debt limit, the economy could be left to its own devices.

Ratings agency Moody's on Thursday said it would consider
cutting the nation's credit rating if progress is not made by
mid-July in talks to raise the $14.3 trillion debt ceiling.

"One look at the jobs report should show the White House
it's time to get serious about cutting spending and healing our
ailing economy," said U.S. House of Representatives Speaker
John Boehner. [ID:nN03150079]

FED SEEN ON HOLD

U.S. stocks fell to mark a fifth straight week of losses,
while the dollar sank to a record low against the Swiss franc.

Treasury debt prices and interest rate futures rose,
signaling that traders believe mounting signs of economic
weakness will lead the U.S. central bank to keep interest rates
pressed to zero for a prolonged stretch.

A Reuters survey on Friday predicted the Fed would leave
interest rates on hold this year and most economists did not
see an increase before the second half of 2012.

"It pushes back expectations to when the Fed can start to
renormalize policy, probably well into 2012 before we see an
increase in the fed funds rate," said Robert Dye, senior
economist at PNC Financial Services in Pittsburgh.

Views the economy was not falling off the cliff were
supported by a separate report showing growth in the country's
services sector picked up in May.

The Institute for Supply Management's services sector index
rose to 54.6 last month from 52.8 in April, with gains in
employment and new orders.

The private sector, which has shouldered the burden of job
creation, added just 83,000 jobs in May, the fewest since last
June, while government payrolls fell for a seventh straight
month.

About 39,000 fewer jobs were created in March and April
than previously estimated. Payrolls in May had been expected to
rise 150,000, with private employment gaining 175,000.

The economy has regained only a fraction of the more than 8
million jobs lost during the recession. Economists say payrolls
growth above 300,000 a month is needed to make significant
progress in shrinking the pool of 13.9 million unemployed
Americans.

The rise in the unemployment rate from 9.0 percent in April
reflected discouraged workers re-entering the labor market
after a pick-up in hiring in April.

"There was very little in the report that suggested the
household sector has any reason to become more confident in the
recovery and that in itself does not augur well for a future
acceleration," said Patrick O'Keefe, head of economic research
at J.H. Cohn in Roseland, New Jersey.

Employment in the private services sector rose by a modest
80,000, a sharp slowdown from April's 213,000 increase.
Payrolls in May were held back by declines in leisure and
hospitality, and retail.

Factory employment contracted for the first time since
October, while construction rose for a fourth straight month.

The report showed the average workweek steady at 34.4
hours, and few signs of wage inflation with average hourly
earnings rising 6 cents.

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